As a British expatriate living in countries like Spain, France, Portugal and Cyprus, you probably know someone who has decided to return to the UK. There are various reasons why peop
As a British expatriate living in countries like Spain, France, Portugal and Cyprus, you probably know someone who has decided to return to the UK. There are various reasons why people return ?home?. Sometimes it is because they miss their family, or because their family need them nearby, or because as they get older they? would feel more secure in the UK, or maybe they just feel it is time to move on. Many people return after their spouse or partner has died.
You too may find yourself returning to the UK one day, even if you do not expect to right now. Or you may already be considering or planning to move back. If so, the most important tax tip I can give you is that you need do careful planning in advance of your return.
To make sure you do not miss out on any tax saving opportunities, you should complete any necessary arrangements in the UK tax year (6th April to 5th April) before you return. So let us say you are moving back to Britain in September 2013, you should carry out the necessary changes to your wealth management by 5th April 2013 at the latest, and preferably as soon as you have made the decision.
This is a complex area, and not one for do-it-yourself tax planning. You need to seek expert advice from a tax planning and wealth management firm like Blevins Franks which specialises in both UK and Spanish, French, Portuguese, Cyprus and Maltese tax planning and how the two regimes interact.
UK tax on investible assets
Once you are resident in the UK, you would normally be liable to UK taxes on your worldwide income and gains.
This includes any income or gains in offshore trusts in which you have an interest. Trusts are a complex area so you will need to seek specific advice for your circumstances.
If you have been living outside the UK, and carry out the appropriate planning while still non-UK resident, you may be able to benefit from tax advantages when you return which are not ordinarily available to UK residents. It is often possible to arrange your investible assets in a manner where you can enjoy tax free growth and income as a UK resident, irrespective of how much money you invest, but you need to start your planning early enough.
Capital gains tax
While long-term non-UK residents do not pay UK tax on disposals of assets (even UK assets), the five year trap often catches returning expatriates out.
If you sell any assets after leaving the UK (investment property, shares, etc), these gains escape UK capital gains tax if you remain non-UK resident for five complete and consecutive UK tax years. The sale can be made at any time during the period after leaving the UK (although sales made in the UK tax year of departure or arrival usually remain taxable in the UK) ? it is simply that you must not return to the UK within five complete and consecutive UK tax years of leaving. If not, you will have to pay tax in the UK on the gain you made. It is not proportionate to the time you spent outside the UK, so you would pay the same tax rate, and on the same amount of gains, if you returned after four and a half years as you would if you returned after one year. The amount of time you have owned the asset does not make a difference either.
You may find that any gains are taxable in the country you are living in. If you are in this situation, there may be a window of opportunity for you to take steps to avoid being faced with the tax when you return to the UK and in your country of residence, but since this would depend on your circumstances, you need to take personalised advice.
If you are also liable to tax in the UK because you are returning within five years, you will get a tax credit in the UK for any tax paid in the other country.
Under proposals that are due to be introduced from April 2013, besides capital gains tax, if you have not been non-UK resident for at least five consecutive UK tax years, you could also be liable to UK income tax on large dividends received from a closed company while you were non-UK resident, or large chargeable gains from an encashment of a life assurance policy, so timing is of the essence if you are only leaving the UK for tax reasons.
Part 2 will look at UK inheritance tax and when your UK residence will start. In the meantime, if you are planning on returning to the UK, you should seek advice from an adviser like Blevins Franks who are experienced in this area and keep fully up to date on both UK and international tax laws.
14 December 2012
The tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual should take personalised advice.